Moody's Talks - Inside Economics - Rates and Reflation

Episode Date: April 23, 2021

Mark Zandi and team discuss interest rates, 10-year treasury yield, inflation, monetary policy, and when we can expect to get back to full employment. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Hello, this is Mark Sandy. Welcome to Inside Economics. I'm the chief economist of Moody's analytics, and I'm joined by my two colleagues, Ryan Sweet, head of real-time economics. Ryan, say hello. Hey, Mark. How are you? Good. Good. You're making everyone think that we haven't talked in about a week, but it feels like I'm talking to you every other hour on the Zoom. Just like old times. For buddies. The other person joining us today is Chris Derees. Chris is the Deputy Chief Economist, Chris, say hello. Hey, Mark. Hey, Ryan.

Good to see you. Good to see you. And we've been Zooming all day long, too. Haven't we been, Chris? We have. It feels that way. So it's good to be with all of you. Let me just remind you of the frame that we use here in this podcast.

Part one, we talk about the data, the indicators. We each give our favorite indicator of the past week or the coming week. Part two, the big topic. This week, it's interest rates. Last week, it was about inflation. So it feels apropos that we're talking about interest rates this week. Inflation is a key driver of interest rates. So it feels like the right thing to do.

And then part three, I'll give you my three cents of the conversation, try to tie all together for you in just a couple of minutes. So with that, let's dive right in. So the indicators, you know, I think for the last, three podcasts, I've gone to Ryan first. I'll have to say it's been a little disappointing. So we're going to go with Chris this time. Ouch. Ouch. Ouch. That hurts. You know, I'm trying to, I want him to raise his bar. So I'm pushing him a little bit. But his bar is pretty high, but I think we can get it even higher. So let's go to, let's go to you, Chris, first. What is your, the indicator or

indicators you want to highlight this week? All right. My number is seven. Oh, Seven. Seven. Ryan, what do you think? Seven. I'm thinking nothing housing related had seven in it. Seven. Oh, my goodness.

The number feels so small to me. I'll make you even small. Seven basis points. Oh, is that the effective Fed Fund rate? It might be, but it's not what I'm thinking of. Oh, okay. Oh, okay. What are you thinking of?

That is the yield on Japanese 10-year bonds. Well, you know, that's peg, right? The Japanese target their 10-year JGB, don't they? There's some float. Yeah, but I think, correct me if I'm wrong. I mean, Ryan, am I wrong? I think the Japanese central bank actually has a target for the 10-year JGB. They do not want it to go negative, so they target it so that it's just slightly

positive. You're correct. Yes. Yeah. That's an interesting policy. I don't even know the history of that. Do you? I mean, what was the reasoning behind doing that? They just didn't want, they didn't want them to go negative. Because that would be a problem for their economy. What was the logic behind it? I don't even remember. Yeah, at the top of my head, I think it was to prevent them from going too far negative. Okay. And that's why they implemented it. Right. Yeah, interesting. Well, Chris, I'm just curious.

Why that statistic this way? Why that one? Two reasons. First, I wanted to give a shout out to our Japanese audience. We have quite a global audience for this podcast, so I wanted to acknowledge.

You're really a suckup. It's pretty fascinating, though. We get some details into who's listening, and it's quite global. Yeah, that's true. So very interesting. Actually, Chris, I need my daily ego boost. The podcast has been very helpful in that regard.

We've got a few nice comments from our Japanese listeners. So that's very, very good. So I'm all for it, Chris. There you go. Keep sucking up. Yeah. Keep spreading the word in Japan. The second reason, of course, is topic of interest rates.

Lots of comparisons between the U.S. and Japan, so I thought it might be useful to start out this way. Thinking ahead. That's good, good thinking. So, Ryan, you don't mind when I kind of throw barbs your way, do you? I mean, I've been doing this the entire four weeks. We've been doing this podcast. And my sense is I'll be doing this long into the future.

Do you have a problem with that? Are you okay with that? You've been doing it for 16 years. It's fine. It predates the podcast. Oh, yeah. This is fine. It's all in good fun.

Yeah. Okay. And you can throw Barbes my way, too. I don't think I can handle them as well as you do, but feel free. Give it a shot. No, I'm worried that none of us are going to be talking to each other for a while after we talk about interest rates. Oh, okay. Good point. So, Ryan, what's your indicator? So it was a quiet week this week. So I picked one for next week. That's going to be a blowout number. Largest increase on record. My forecast is 21.5%.

21.5%. Is that personal income? Exactly. Oh, there you go. There's your ego boost for today. There's my ego boost, baby. And so you tell us, why is it going to be up so big in the data for March? So you had hundreds of billions of dollars in seamless checks go out. also the expansion of UI benefits.

All that's going to boost transfer payments. So it's all going to be transfer payments. But again, this is the largest increase if you go back into the early 1960s. It's by far and away, an enormous game. And I suppose that's one reason why the March economic data were, you know, gangbusters. I mean, they were across the board, boom-like,

and obviously a lot of cash went out through the transfer payments, the stimulus. Yeah, I think this one number ties it all together, like you said, sales was really strong. Vehicle sales were strong. So it all because, you know, you put money in people's pockets, you know, they're going to go out and spend it. Yeah. And that goes to all the excess saving. Do you see that I put together some excess saving estimates for countries across the globe? Did you see that? FT picked it up. And this was an estimate for the first quarter of 2021 because,

of course we don't have complete data. But globally, over $5 trillion in excess saving, that saving above which would have happened if the pandemic had not occurred. So that's people sheltering in place, not being able to spend their money and they're saving their money, mostly high income, obviously high net worth households.

And the U.S. accounts for about half that, $2.5 trillion. And I'm sure that this number, you mentioned, the 21.5% Going to go up? Yep, going to go up. Yep, that's exactly right. Okay, I got my statistic.

Ready? Down 52%. And this is, it sounds, you know, anything when you say down, it says, oh, that's got to be bad. Something's, something's wrong. But this is good. This is a good, this is something we want to go down. Down 52%. Any idea?

You can give. It's not crypto. It's definitely not copper. Well, crypto is down a lot, though, this last guy. I know you're a little, your, you're, you're, you're, you're, you're, you can. You're looking a little poorer than, Chris. Constant. Constant zero.

Although you're still wearing that damn red shirt. Every Friday you're wearing that. What's that all about? Have you noticed that? It's his Tiger Woods. It's his Tiger Woods approach. He's trying to intimidate us. I'm sure that's right.

You're right. That didn't dawn on me. Yeah, that's what he's doing. He's trying to intimidate us with that red shirt. Okay. I don't know about the purple shirt you have. I know. I know.

It's confusing. Is this purple? I didn't realize. It looks purple to me. Down 52% though. Yeah. All right. I'm going to give you three more seconds.

1001, 1002. Oh, I got it. You got it. Okay. Hand sanitizer sales. That's pretty good, Chris. But wrong. Is it COVID-related?

Dead wrong. About dead wrong. No. Well, I don't know. Everything is COVID-related. Come on. It could be the case. I have no idea. But down 52%. That is what President Biden promised our U.S. CO2 emissions will be down by by 2030. You made that promise at the climate summit, you know, with all the foreign leaders yesterday, down 52%. That's actually from the, from now till.

2030, and that's when the goal is, which is, you know, laudable goal, obviously. Got to get the CO2 emissions down for us. A lot more work to do after that. We've got to get to net zero, but at least we've got a president who's starting to try to tackle this problem. By the way, you can feel the, like a sea change in Washington in attitudes with regard to climate change with the president of the Biden administration. I mean, go back in the Trump administration, all.

the regulators didn't even want to talk about climate change, but now under the Biden administration, they're all working overtime to try to figure out how they should be regulating. Of course, I'm mostly talking about financial institutions, the folks we deal with mostly, trying to figure out how they should regulate financial institutions to mitigate future climate risk. So it's been just a complete 180 on attitudes towards climate change. In my view, all to the good. But down 52%. That's my statistic for the year.

You're right. I was struck by the precision of 52. Yeah. I could have gone to the third significant digit, but I decided probably would be a false precision. Okay, that's great. So let's go on to the big topic, interest rates. And let me preface this by saying,

I think we need to be humble here. At least I need to be humble. You guys, I'm not sure how you feel about this. But we at Moody's Analytics produce a lot of forecasts, and I've been producing a lot of forecasts for a long time, about 30 years. And forecasting anything is tough. It takes a lot of hard work. to get it roughly right, but forecasting interest rates is a very intrepid affair, very difficult.

I mean, at the end of the day, you're forecasting an asset price, right? I mean, like you're trying to forecast stock prices or crypto prices. I know Chris, you're really good at that, but, you know, most people aren't. Commodity prices. And, of course, interest rates, it's the price of a bond, you know, fixed income security. So forecasting any kind of asset prices is very, very difficult because it's a function of fundamental factors, but it's also a function of market sentiment, investor sentiment, and a lot of other technical factors that make it very, very difficult to get right, at least in the near term. But with that is a caveat.

Let's talk about interest rates. And let me say one other thing, just to tie it into last week and inflation, and correct me if I'm wrong guys, but the way I would characterize our forecast around inflation was the following. Ryan, you kind of felt like inflation wasn't really going to accelerate much from where it's been over the last decade or so. So core consumer expenditure deflator inflation would be, you know, one in three quarters to two percent per annum over the next three, four, five years, which is not quite the Fed's target, which is closer to two percent. So they kind of fall short on their goal of achieving their 2% target.

Do I have that roughly right? That's correct. Yeah. And Chris, your view was we'll do better than that. I mean, the Fed will do better than that. They'll get inflation up from the 1 and 3,4% where it's been to somewhere to 2 and a quarter percent over the next 3, 4, 5 years. And that would be Nirvana. That would be exactly what the Fed wanted.

If Fed had a script, if it has a script, that's what they want. Is that right, Chris? Got that right? Goldilocks. Yep. Goldilocks. That's a good way putting it. And then I took, even though I think the baseline, which is what your view is, is a reasonable one.

And it's our baseline, or most likely scenario, I took the high side. So I said, okay, if you're wrong, and I think there's, you're wrong about lots of things, a lot, a lot of the time. So it's not a problem for me to take, you know, take the other side of this. I thought that it would come in on the high side, you know, two and a quarter to two and a half percent over the next three, four. I'm really curious. I'm really, really curious if our forecast for interest rates are consistent with our forecast for inflation, right? Because interest rates, nominal interest rates are really, at the end of the day, equal to inflation expectations. And we just expressed our expectations for inflation plus real interest rates.

So if you got a view on inflation, it's not necessarily the case, but that also should come pretty close to informing your interest rate expectations. So let's lay it on the line right now before we dig in deep. Ten-year treasury yield right now, that's kind of the benchmark long-term interest rate. Today it's sitting, let's say, at one and a half percent. It's a little bit above that, but for rounding purposes, one and a half percent. it got as low as about a half a point back in late August last year in kind of the height of the pandemic. So we're up about 100 basis points, a full percentage points from where we were a year ago. Where do you think the 10-year treasury yield will be, let's say, three years from now, three years from now?

Ryan, I'm going to go to you first. You're going to ask me three years? I was going to say three days. Oh, you have an idea for three days from now where it's going to be? That's where I'm confident. I couldn't give you an accurate forecast three days ahead, three years. That's got... That's a tough one. Okay.

But I'll give it to you. Make your horizon, then. No, I'll say between two and a half and three. Okay. Two and a half and three percent. So we're at one and a half, three years from now. Presumably the economies at full employment are pretty close. Inflation is where you expected to be one and three-quarter.

orders you two, the economy is growing pretty close to its potential. That's kind of, you know, long run equilibrium. So you're saying, what did you say it was going to be? Wait, no. I was giving you the equilibrium. Oh, no. No, I'm sorry. I'll go three to three and a half. Oh, you go to three. Okay. Yeah, I was thinking long. Okay. Okay. Three to three and a half percent. Yep. Okay. Very good. And, Chris, where would you put the tenure yield? Yeah, that, that's where I was thinking. Three, three and a half percent, three years? Three and a half, yeah.

Okay, so even though your inflation forecast is a little higher than Ryan's, you're still landing in the same place on the 10-year treasury yield. That means by implication, your expectations for the real yield after inflation is lower than Ryan's. Okay. Yep. Okay. Okay. I'm going to take the high, like I did on inflation, I'm going to take the high side.

And in this case, I represent the baseline view, or at least the baseline of Moody's analytics, and that's somewhere between three and a half and four percent, three and a half and four percent. Okay. So I'm on the high side of the two of you. How many years has it been that Chris and I have been trying to talk you down on the 10-year treasury forecast? No, I know. It's going to fail. I want to tell you why you're wrong, okay, about this.

if you look at the 10-year yield over the last, let's say, 60 years, let's go back to 1970, and then look at the nominal growth in the economy, nominal GDP growth in the economy over that 70-year period, would it surprise you if I told you they're exactly equal to each other to the basis point? No, I wouldn't be surprised. Wouldn't be surprised, right? And so the kind of the logic for why they should be equal is that the 10-year treasury yield is a measure of the economy's cost of capital, economy-wide, and the growth in the economy, the nominal GDP growth in the economy, is the return on that capital. So in the long run, stands the reason that they should be equal to each other, the cost of capital equal to the return. on capital. So that means looking forward that the 10-year yield, you know, in the long run,

should be equal to the nominal growth in the economy. So in my view, the nominal growth in the economy, GDP growth in the economy is three and a half to four percent. How do I get there? That would be, you know, 2 percent inflation, or in my case, I was up at 2 and a half percent inflation and one and a half to two percent at real GDP growth. And that's how you get to nominal, nominal GDP growth of three and a half to four. And that's where my tenure in your treasury yield goes. So first question, do you buy that framework, at least in the time frame we were discussing, you know, out three years from now? You know, maybe you could say it's going to take longer than that, but, you know, do you buy the framework? And if you buy the framework,

how do you get to a different place than me? What is it your thinking about growth or inflation? And you're already on the record on inflation, by the way. So how do you think about it? How do you get out of that box I just put you in? Chris? Well, I guess first assertion, I think if you look at the data, actually, you'll find that the 10 years is a little bit lower

than the growth of nominal GDP. So I'll disagree with you on that spread. on the two of the series being equal over this historical time period. So I think it has over time been below, the tenure rate has been below nominal GDP. But looking forward, I would say the other factor I would consider here is international investors. Right. So the, I don't think we can look at, because the dollar is a reserve currency and you have so many international investors, piling to the dollar as a safe haven, I think that's going to be a factor in your, or should be a

factor in our forecast going forward. So I don't think we can rely on just the U.S. situation. You have to consider the global economy. Okay, so let me just make that clear for the listener, what you're saying, which is actually a very interesting point, that, look, the 10-year treasury yield is not only a U.S. interest rate, it's really globally determined because you've got global. investors coming in to the 10-year as an investment, the 10-year, the benchmark interest rate, it's the risk-free rate. That is the key interest rate across the globe, long-term interest rate

across the globe. So you've got German insurance companies, Japanese, banks, Canadian financial institutions coming in and buying the 10-year yield. And because interest rates are so low overseas, you've got negative rates in Europe, you've got negative rates in Japan, that that, that, kind of puts a ceiling on the 10-year treasury yield here. So if the 10-year yield starts rising too much, then it becomes very attractive for those foreign investors to come in, even with the currency risk that they face. They feel like, oh, this is a bargain. And that's going to keep long-term interest rates lower here than the fundamental, the fundamentals, determined by the fundamentals the way I described it. So that's another variable in the calculation that I did not

consider that we should consider. Yeah. Okay. Ryan, do you have a different perspective or were you thinking the same kind of thing? Is that how you got out of the point? I was thinking similar to Chris, but I would also tackle on that I think the gap between nominal GDP growth and the 10-year treasure yield has gotten wider in the era of QE. So quantitative easing. And the Fed's balance sheet isn't going to contract anytime soon, particularly not over the next three years. So I think that's going to continue to put downward pressure on long-term rates, keeping the term premium at zero or negative. Okay. Yeah, that's another reasonable argument. So you're saying, oh, the Fed is now a big buyer of these bonds through the quantitative easing. QE quantitative easing is the Fed buying bonds.

and they're out there buying bonds. And that depresses, that raises the price, depresses the yield. And that's intentional. That's an effort by the Fed to help support the economy, keep interest rates low, support housing, investment, equity prices and everything else. So those two factors will continue to weigh on long-term interest rates,

keep them below that rate, that 3.5 to 4%, that would be consistent with kind of the, fundamentals I described. So if we didn't have those two factors, then then rates would be more consistent with where, or I think I'm thinking. Okay, fair enough. I'll, and those are really two good arguments and it goes back to why I think we should be humble because it's hard to know, you know, how they're going to play out. I will say in response to the argument about foreign investors, it feels like, and I agree with that, that that in fact has played a very significant role in recent years. But it feels like that's going to play less of a role going forward. And the

reason is that every country on the planet is issuing a lot of debt to finance their own COVID responses. I mean, here in the U.S., the administration put forward big fiscal packages, borrowed a lot of money to help provide those stimulus checks and the PPP money and help airlines and everything else. Every country in the world is doing the same thing. and there's a lot of pressure on financial institutions in every country to buy the debt of that country. So there's a lot more pressure to do that. In fact, if you look at capital flows into the United States during the pandemic, they happen, but not nearly to the degree that they've happened in recent years prior to the pandemic.

And I think it's a significant part due to that pressure that's coming from countries on their own financial institutions. But nonetheless, I mean, that's a reasonable argument. So if we take out the international buyer, what about domestic? We have 10,000 Americans retiring every year, boomers, or every day, 10,000 every day. Isn't that going to increase demand for treasuries? I never, you know, that's a kind of a flow of funds argument. I never really bought into those kind of arguments. I mean, yeah, maybe on the margin.

but you know, you also have a lot of millennials kind of approaching the point in their life cycle when they take on a lot of, you know, a lot of, they borrow a lot of money and they take on a lot of debt and you're going to see a lot of bond issuance to support all that debt accumulation that the millennials. So I don't know. I don't want to argue that one too strongly, but I feel like that's kind of on the margin. You know, I don't, that I'm not convinced by that. But, you know, I think it's a tougher argument to make. The other one, though, on the Fed, that's also a reasonable argument. So let's get to monetary policy, because obviously monetary policy plays a key role in,

obviously, direct role in affecting short-term interest rates. The Fed controls the funds rate, which significantly impacts short-term interest rates. less, it has no direct, the Fed has no direct control except through QE, but short-term interest rate policy doesn't affect interest rates directly, but certainly indirectly, and QE certainly affects long-term interest rates. I guess a key question here is, what do you think the Fed's going to be doing, and when is it going to be doing it? Because that also is important to long-term rates. And so, Ryan, I was going to turn to you, because you follow the Fed very carefully, There's been some change here recently in the way the Fed conducts monetary policy and thinks about monetary policy.

And maybe you can describe what that is and what you think that means for monetary policy and then connect the dots back to long-term interest rates like you previously did. Yeah, so recently the Fed altered their policy framework to this concept called flexible average inflation targeting. Basically what that is is the Fed's going to aim for above target inflation in good times. to make up for below target inflation in bad times. So like when the economy is in a recession or the recovery is fairly weak and we have disinflation. What that means is it's pretty dovesh for the path of interest rates that, you know, the Fed basically committing that we're going to do everything we can to make sure inflation overshoots for a period of time our 2% inflation target.

Along with this policy change in their framework, they're de-emphasizing two things. First, the unemployment rate gap, which is the actual unemployment rate versus, you know, economist estimate of Nauru. You know, they were kind of back burning that. They're actually going to, you know, wait until they see the whites of inflation's eyes. So they're not going to worry about the unemployment rate falling too quickly before they start raising interest rates. Which is a big shift in the past, you know, the Fed, when they saw the unemployment rate falling,

you know, quickly, they would start pressing the panic button and arguing that we need to raise interest rates to ward off any future inflation. And the second thing that their de-emphasize, which is pertinent to our conversation, is deemphasizing their forecasts and putting more emphasis on actual data. So how the job market is actually doing, how inflation is actually doing, versus their forecast. Yeah. So given that, I mean, given all of the fiscal support coming to the, in the economy, coming to the economy, given the growth rates we're saying, When do you think the economy is going to reach that full employment level that, you know,

would by itself doesn't trigger an interest rate hike by the Fed, but certainly is a necessary condition for that to happen. When do you expect that to occur? Early 2024. And that's probably sounds like a little bit pessimistic. What? Okay. I'm looking at the prime age employment to population ratio. So we're four percentage points lower than we were pre-pandemic. And, five percentage points lower than we were, you know, roughly in the early, late 1990s, early 2000s, which I think is probably the last time we can save with any confidence that we're at full employment. So that's kind of like my North Star, my guiding post for when the Fed's going to raise interest rates is when we start to get back up prime age employment to population ratio towards the late 1990s

early 2000. As I recall, the employment to population ratio for people that are aged between 25 and 54, so that would be prime age. The kind of the threshold is about 80%. So if you get over 80%, that would be consistent. If you go back through the last three, four business cycles, that's been a regularity. You get over that 80% threshold, that's when you start to see wages accelerate and price pressure start to develop, inflation starts to accelerate.

Is that the rule of thumb you're using? the 80% threshold? Yeah, give or take, right around there. Give or take. And you're saying that with all the growth we're getting and going to get, with all this fiscal support and all the excess savings and the end of the pandemic and people letting loose, it's going to take till 2024 to get E-pop. Very early.

Very early, 2024. Oh, okay. Early 2024. So three years from now is what you're saying. This is early 2021, right? Correct. Yeah, it takes three years, which is, I mean, it's a lot faster than we heal from the last. Okay.

Okay. If that's your forecast, then everything fits. You know, I mean, you're right. I mean, inflation isn't going to accelerate. It means interest is going to remain low. And then you throw in your other arguments about financial flows and Chris's argument about global capital and, yeah, keep interest rates low. Okay, I get it. But it should be even more extended, though, right?

Maybe even more, right? You're saying inflation, everything should be low for an extended period of time. Those pressures aren't going to build for a while. Well, remember, our inflation forecast was on average. Okay. So, I mean, this year we're going to get above target inflation on average. And then we get a period of below target. Everything's consistent.

I'm stubborn, but my forecast is consistent. Okay, no, good. That's interesting. I didn't realize you were so bearish on how quickly the economy would get back to full employment. Interesting. What about you, Chris? When do you think the economy is going to get back to that full employment level? So now my whole world's been upside down here.

My thought, I've been thinking end of 2022, end of next year. And actually, I'm thinking I'm on the pessimistic side, right? I've been convincing myself that it could be even faster with all the stimulus. that's coming in and proposed. So I don't know. I'm going to have to take the weekend here and rethink everything. Well, okay. So when do you think the Fed will begin to, well, let me ask you this.

If it's late 2020, when we're in full employment, that means that inflation is accelerating is above two as we move into 2023. Yeah. Given all that, when do you think the Fed makes its first move on short? term interest rates? Yeah, 20. Early 20? Yeah, first half, yeah, first half somewhere in there. Okay, fine. What month? You gotta give a month.

April. Okay. So you want the markets? Two years from now. Two years from now. Yeah, what do the markets say? What are the financial? Market expectations. First rate hike is in Q1 of 2023 and then a cumulative 75 basis point increase in 2023. Okay.

Which if you look at our forecast is basically our baseline. That's our forecast. That's my, by the way, that's my forecast. That's my, because I have to fight these guys every month. That is my forecast. So I agree with Chris. I think we get back to full employment. And I agree with you, Ryan.

E. Pop for prime age workers is the best way to measure it. I think we'll be at 80% by late 2022. And I think the Fed will begin raising short-term interest. in early 23. And if I had to pick a month, it'd probably be at the January FOMC meeting. Because I do think inflation is going to be consistently above that 2% target. And that'll be pretty obvious by very early, late 2020, going into early 2023. The other thing I think will be compatently, will be very, very clear and kind of reinforce

why the Fed's going to move is wage growth will be accelerating very rapidly at that point. I mean, one very interesting aspect of the pandemic was that it did not lower, did not affect wage growth to any significant degree, even properly measured. I know there's a lot of measurement issues, but if you go look at the employment cost index, the ECI from the BLS, which controls for industry occupational mix, it shows that wage growth remained very strong in 2020. And even at the end of 2020, it had come right back to where it was pre-pandemic. And that feels like it means the labor market, outside of those industries that got nailed by the pandemic, leisure hospitality, retail, airlines, personal services. Everywhere else, the economy held up well and labor markets are tight, wage growth will accelerate. And the Fed will see that, and that'll give them more confidence that they need to begin raising rates sooner rather than later. So I think they'll be starting to raise rates if I had to pick a month, January, 23.

In fact, I do have to pick a month, don't I? Because we have a forecast, and I have to pick a month. So that's the month. That's a big difference. Yeah, it's a big difference. And I think the key thing for the Fed is trying to understand their inflation, how much they're going to stomach of an overshoot. And if you look at the summary of economic projections,

you can kind of tease out roughly what they think it's going to be. So right now, if you get inflation persistently running at 2.2, 2.3 for the core PC deflator, then I think they're going to start, you know, contemplating raising rates. But that's not going to happen anytime soon. Okay. Okay. Yeah, good point. Okay.

You did have your ego boost. I did? Earlier. So your forecast is very similar to... You can give me another one. I'm always... Oh, no. So your forecast is similar to financial markets for the Fed.

Yeah. Oh, yeah. Markets are terrible predicting the first rate rate. I know. I know. That's what makes me worried. But I'll have to say, I've been at that, there for a long time. The markets came to me.

I didn't go to the markets. Correct? True. True. I've been at, we've had that forecast in place for quite some time. So, but, okay. So just to reiterate, we had a dollar bet on inflation. We're going to have another dollar bet on interest rates.

And Ryan is saying three years from now, April of 2024, the 10 years. is going to be somewhere between three and three and a half percent. Chris is saying the same thing, three and three and a half percent. By the way, let me finish, and then I'll come back to you, Chris, because I want you to, oh, you told me already. You told me about the global, the, the reason why you're lower on, there's basically the term premium is going to be lower because of global demand. Okay.

And I'm at three and a half to four percent. So write that down, Joseph, because when we have our podcast three years, from now. We're going to have to settle that bet as well. Okay, we promise that we're going to keep this podcast a little shorter. It seems to be the conventional wisdom, although no one has told me our podcast for too long, but there seems to be a conventional wisdom out there that it shouldn't be, you know, 40, many more than 40 minutes. So last week we're at 45. So we're going to keep it a little shorter. If you've got a different view, if you like what you're hearing, you want us to keep going on, you know, please let us know. And also,

So I want to remind you, if you like what you hear, give us a review. The reviews are very important because I need that ego boost primarily, but it also is very important for getting our podcast out there. But let me end by summarizing things. And, you know, first thing to reiterate again, you got to be humble here. Forecasting interest rates are pretty difficult, very difficult. Second, they go up and down and all around. So even though we all think interest rate, long-term rates are rising, they're going to be somewhere between 3 and 4 percent, three years from now.

There's a lot of ups and downs and all arounds between now and then. So keep that in mind. And I guess the third thing I'd say is a lot does depend on the economy's performance here in the next 12, 18 months, how strong growth is, how many jobs are created, how fast unemployment declines, how fast we get back to full employment, and when does inflation begin to pick up in earnest? And that's, you know, tough to gauge. But, you know, I think a prudent planner at this point would plan on interest rates moving higher from here over the next several of years. So with that, we'll call it a day. This is the end of our fourth podcast. Hope you enjoyed it. And talk to you next week.